General Motors Co. (GM) agreed to pay a fine of $35 million to the U.S. safety regulators due to the late recall of 2.6 million older-model small cars associated with 31 crashes and 13 front-seat fatalities due to faulty ignition switches. This is the maximum fine which the government can impose. However, it only constitutes one day’s revenue of General Motors based on sales in the first quarter of 2014.
General Motors identified the switch problem in 2001. As a matter of fact, the engineers provided different ways to rectify the defect but none of them was accepted due to cost concerns. The company finally announced a recall in Feb 2014.
According to General Motors, a heavy key ring or uneven roads can cause the ignition switch of the recalled cars to shift away from the run position, thus turning off the engine and electrical power. In such a situation, the front air bags will not inflate in case of a crash.
The National Highway Traffic Safety Administration (:NHTSA), the auto safety supervisory body of the U.S. government, is investigating General Motors’ delayed recall. Lawfully, the automakers are supposed to alert the NHTSA about any safety concern in vehicles within five business days of recognizing the problem.
Thus, General Motors has been accused of breaking the law. Congress says that the fine to be imposed on the automaker should be raised to $300 million. Moreover, the consumer safety advocate demands for a Justice Department investigation to decide the penalty.
Earlier, automakers like Ford Motor Co. (F) and Toyota Motor Corp. (TM) have been fined for late recalls. In 2013, Ford had to pay a $17.4 million fine for the late recall of Ford Escape SUVs with defective gas pedals. Toyota also paid a lump sum fine for delayed reporting of safety issues in its vehicles.
General Motors currently holds a Zacks Rank #3 (Hold). Fox Factory Holding Corp (FOXF), carrying a Zacks Rank #1 (Strong Buy), is a better-ranked automobile stock.
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